Canadian inflation slows to 0.5% in January

Hamilton Spectator

OTTAWA - Canada's inflation rate slipped to its lowest level in more than three years in January and retail sales in December posted their biggest drop since April 2010 due to stingy shoppers and lower new car sales, Statistics Canada said.

The Canadian dollar fell to an eight-month low after the two reports, dropping by more than half a cent. The loonie was down 0.64 of a cent at 97.52 cents US Friday morning.

Statistics Canada reported earlier the consumer price index in January was up 0.5 per cent, the slowest pace since October 2009 and below economists' expectations of a 0.7 per cent increase. December's gain had been 0.8 per cent .

Excluding gasoline prices, which fell 1.8 per cent year-over-year, Canadian inflation increased 0.6 per cent after rising 0.8 per cent in December. Higher prices for food, up 1.1 per cent, helped offset the lower fuel prices.

Core inflation, which is watched by the Bank of Canada and excludes the most volatile items, was 1.0 per cent for January — at the low end of the central bank's target range.

TD Bank economist Diana Petramala said with inflation well below the Bank of Canada's two per cent target, the central bank is likely to keep rates where they are though 2013.

"Given the weak economic backdrop heading into 2013, inflation is likely to remain soft over the next few months," Petramala said.

"However, price increases should pick-up modestly along with economic momentum as the year unfolds. In particular, rising gasoline prices will likely help bolster headline inflation in the coming months."

The inflation report came as Statistics Canada also announced a larger than expected drop in retail sales in December, which broke a streak of five consecutive monthly gains.

Statistics Canada reported Friday that retail sales in the final month of 2012 fell 2.1 per cent, the largest drop since April 2010. Economists had expected a decline of just 0.3 per cent.

"The holidays weren't very happy for retailers," CIBC economist Emanuella Enenajor said in a report, which noted that December was affected by November's "Black Friday" sales.

"The 1.6 per cent decline in retail volumes adds measurable downside risk to GDP in December, which could post a 0.3 per cent contraction, leaving fourth-quarter growth likely tracking below the Bank of Canada's one per cent call."

General merchandise stores fell 3.7 in December, due to department store closures.

Meanwhile, sales at electronics and appliance stores fell 12.1 per cent following a double-digit gain in November.

Sporting goods, hobby, book and music store sales fell 1.8 per cent, while furniture and home furnishing store sales dropped 1.3 per cent.

Retail sales were down in every province.

Last month, the Bank of Canada trimmed its expectations for economic growth in 2013 and governor Mark Carney said the need to raise borrowing costs was "less imminent."

Analysts interpreted the statement as signal the bank's trendsetting policy rate would remain at one per cent well into 2014.

Among the eight components tracked by Statistics Canada, prices rose in six of them with the transport ion and clothing and footwear components being the exceptions as they dropped 0.5 per cent and 1.6 per cent respectively.

Food prices rose 1.1 per cent on a year-over-year basis in January, while household operations, furnishings and equipment gained 1.2 per cent. Health and personal care gained 0.3 per cent.

Recreation, education and reading gained 1.1 per cent, while alcohol and tobacco were up 1.9 per cent.

Shelter costs rose 0.6 per cent.

Note to readers: This is a corrected version. An earlier version incorrectly stated the inflation rates for clothing and footwear, housing operations, furnishing and equipment, recreation education and reading and alcohol and tobacco.